Jorge Bertolino economist
One of the most popular sports at this time is the announcement of disruptive economic events of direct or medial occurrence, but impossible to stop, with available tools of economic policy, both for the present and for the future government.
One of the most recent versions assumes that restrictions are imposed on help and control IMF They are steadfast and immovable, which is why there is a lack of flexibility in dealing with inflation and excessive pressure on the exchange rate, along with initial misdiagnosis by government and the body of the recipient, undoubtedly lead to an extreme crisis in the style of the previous nine years that our countries have had in recent decades.
default, partially confiscated (Plan Bónex) e hyperinflation, are some of the beauty that has been announced, and in some cases militated, for the next months or years. Those who personally live in the past, some of these catastrophic events, do not take so light or joyfully to celebrate their future.
It is troubled by the ease and irresponsibility that presupposes the inevitable explosion of the exchange rate, the suspension or the reprogramming of future maturities in foreign currency, the extreme inflation crisis, corralitos, exchange of long-term bonds and similar similarities.
A little history
If we start chronically after the creation of BCRA (05/28/1935) and leave behind the gold standard crises, we have had nine disruptive events ever increasing complexity and difficulty in solving more than seven decades.
Approximately one every eight years, which is why the Argentinians are worried and resigned to reach number ten to round off the bill. In addition, we celebrate the eloquence of those who anticipate the coming of a new crisis, as if the cost of coping was just as tedious and inexorable.
It would be nice to have it in mind later Rodrigazo, a name recalling a set of measures that recently appointed Minister of the Economy Celestino Rodrigo, by then-President Marie Estele Martínez de Perón, the crisis ever more expensive in the social sense, and it is allegedly upcoming, would have catastrophic consequences that would not be it could be easily solved in a few years, as it happened other times.
This "economic plan" assumed a devaluation of more than 150%, a strong adjustment of tariffs and interest rates, which contributed to the increase in salary by a 30% decree and the suspension of joint negotiations with the consequent freezing of workers' income.
Rodrig's predecessor was the minister José Ber Gelbard, an entrepreneur friend of General Peró, who followed the expansive fiscal policy, financing with a high and growing fiscal deficit with monetary emission, within the framework of fixed exchange rate policy and generalized wage and salary controls across the economy.
The result is, obviously, the backdrop of the exchange rate fluctuations and difficulties that have sharply and dramatically increased the dollar price to avoid a capital crisis due to the lack of foreign exchange to import essential inputs for industrial production.
After Rodrigation, inflation first reached three digits and opened a period of strong instability that would not stop at the convertibility plan in the early 1990s, although before 1989, it was necessary to withstand hyperinflation left unforgettable memories in which we live. The price rebalancing took place two or three times a day, and the struggle for the monopolization of scarce food on supermarket shelves was cruel and unjust, even for those rare who could access them.
Since 1975, the stage of bimonetistization of the Argentine economy has begun. The bad currency is used in a transactional way, and its demand is followed by a declining trend in order to avoid, as far as possible, the payment of an inflationary tax which implies its possession. This phenomenon is called a "secular fall in demand for money," which has continued its long-term trend and has significantly accelerated in recent months.
Good currency (dollar) is used as a guarantee of value. Savings are denominated, preferably in this currency, thus becoming financial assets, adding a new source of demand to the previous one, resulting from its use as a currency for international trade.
This flight, fully justified by the inflationary value, resulted in a gradual and continuous reduction in the real amount of money in the economy. The total money mass, in the sixties and seventies of the last century, was roughly equal to 30% of GDP.
By the end of the 1980s, it fell by almost 90%, to an amount corresponding to 4% of GDP.
Most politicians, and not a few economists in our country, turn to ignore "unpleasant monetary arithmetic," which is the title of an important article Thomas Sargent Measure cost, in terms of inflation, of financing the public sector deficit by money issuance. Subsequent works by Argentinean economists, among which are extremely remarkable Carlos Rodríguez, with brilliant and unparalleled contributions, helped to statistically quantify this relationship: every 1% of the fiscal deficit funded by the monetary issue implies an inflation of around 10% per annum.
The inevitable question that the government is naive to deny is that it is not a primary deficit that, with little success, should be zero this year, which should be taken into account in this analysis, but the sum of all the monetizing budget imbalances including the quasifiscal in BCRA's head , where the impact of attributing interest to "growing mountain Leliq" is of fundamental importance. This amount could be close to 6% of GDP. Two points of the primary deficit and four points of interest.
The current ultra-restrictive monetary policy can then be considered "successful". Instead of 60 percent inflation predicted by the model, if there is no big crisis, it could approach 40 percent. There are two "details" that occupy "success". The first drop in the activity, salaries and spending that is being monitored, and the second is an important issue of the passage of price limitation. Inflation suppressed in these columns called on many opportunities. Monetary stricter redistributes inflation over time, leaving tomorrow's inflation that should occur today. Sooner or later the transfer of monetary prices is unbearable.
We can do a light exercise that clearly shows the severity of the current moment. With the money demand of 30% of GDP, financing a 3% fiscal deficit implies a 10% increase in cash. This is what happened before Rodrigation and the beginning of "secular fall in demand for money". At this point we could estimate the money supply of about 6% of GDP and deficit, as we said earlier, to 6% of GDP. It can easily be seen that, in the absence of external financing, it is necessary to require a double amount of money (and price) in the current period.
Since stratospheric interest rates can not be sustained, it will inevitably take a long time to see the reversal of inflationary repression to what is commonly referred to as inflation-suppressed inflation. If we add that inflation increases inflationary dollar inflation through dollarization, the amount of money in the economy could be down to 3% of GDP. With the current interest rate,mountain Leliq"The number is scared, and the resulting inflation of dual-interest financing with half the money demand is too eloquent to stop this madness before the inflation spirals and can become hyperdollar with disastrous consequences.
Is the crisis inevitable?
In the same column we said a few months ago that, if we are aware of the severity of future evolution (which is present today) the politics of rewarding the reserves in style Monetary regulations account José A. Martínez de Hoz, who lies behind the daily competitions Leliq, the remedy for this sensitive question could be found. This experience, with its variants, lasted from 1977 to 1989. Although it was possible, as it was then, to stretch out a few more years, it should not be forgotten that the combination comes with a permanent recession, a drop in wages and an increase in unemployment. It was not in vain called "lost decade".
The warning of the severity of the situation, from a monetary point of view, in this note, is not intended to alert the reader or cause panic to the investor. The aim is to persuade authorities to be aware of these facts and to act with a sense of urgency in search of long-term international funding for disarming a bomb that, sooner or later, has the fate of an explosion.
The closing down of the credit market should not be discouraged. If the danger posed by the future of the current situation is communicated abroad with a real sense of urgency, it is necessary to get enough money to not burn several BCRA's net reserves to destroy the monster threatening to destroy the Argentine economy: Leliq Mountain.
The required amount is approx $ 20,000 millionan important amount but not impossible to achieve if the consequences of continuing the existing system are convincingly dramatized and the IMF is convinced of the convenience of the proposed change.
I kill two birds with one stone
Clearing BCRA's balance and destroying Leliq are two fundamental goals of the proposals that are outlined here. Not going this way will inevitably end in a Bonax-style traumatic solution and include a mandatory exchange of term deposits for a long-term bond that will be quoted on the market at a high discount and will be partly confiscated once more by Argentina's savings.
The aforementioned funds must be obtained and then their services provided with a vault. With those dollars, the debt with the BCRA, which is in the treasury, will be canceled. It's about the inexplicable bonds that Kirchner left when he was robbed by the treasurer of the issuer. It must be borne in mind that the Treasury has taken over the foreign currency and, in return, has given colorless paper. Although they are included as assets denominated in dollars in BCRA's balance sheet, they are usually subtracted to more accurately reflect the available net reserves.
With so obtained dollars, BCRA will continue with the cancellation of the Leliq Fund. It will be necessary to completely relieve the foreign exchange of the financial system, to migrate to the absolute bimonetariedad, with a free currency selection. In order to measure the flood of dollars in the market, the volume traded on the official stock market, which reaches USD 600-700 million a day, must be compared.
A good complement to this scheme would be the informal convertibility of mobile bandwidths in real value. For example, 45 USD (BCRA buys all the offered amounts) and 48 USD (sells the entire required amount). Banks have to sell because their obligations, fixed terms and obligations are in accordance with reserve rules, which must be reduced to technical levels that are compatible with those that operate internationally.
The issue of buying these dollars will finance a new and genuine demand for money to be generated in the economy. In this model, money is endogenous and is defined by the amount of foreign currency that the market buys and sells daily to the issuer. The fall in interest rates, both in pesos and in dollars, will be very high and will give way to serious consideration of the set of tasks: to reduce public spending and taxes and to implement structural reforms that ensure competitiveness for the private sector to enter the phase of sustainable growth with social progress.